Bitcoin’s chart has some eerie parallels to gold in the 1970s
by James · April 17, 2023
Many investors have dismissed the notion that bitcoin could be a type of digital gold since the cryptocurrency has traded as a speculative risk asset for much of the past two years. But about 50 years ago, gold did the same thing, Morgan Stanley said in a recent note. If bitcoin’s current movements continue to follow that of gold in the 1970s, the cryptocurrency could be in for some tough times ahead. In 1971, individuals could no longer convert US dollars into a specified amount of gold. Since 2008, governments have become more dependent on central banks creating new fiat currency — money not backed by a commodity — to provide support in times of crisis, according to Morgan Stanley’s note. It is different from bitcoin, which has a limited supply. In the 1970s, “gold tracked rising consumer price inflation (CPI), which was largely a result of the recent explosion in the fiat money supply,” said Sheena Shah, a strategist at Morgan Stanley and co-author of the note. . “Bitcoin, on a logarithmic scale, has thus far followed a similar path to the gold price speculation of the 1970s, which also seemed to follow a four-year cycle.” Starting in 1971, gold prices quadrupled within four years as the US dollar money supply grew rapidly, the strategist said. “However, that was not the height of speculation: from August 1976 to January 1980, the price of gold rose eightfold from $102 to $850.” “As the price of gold was still managed in the early years, the similarities may be a statistical coincidence … more likely, in our view, is that both were driven by similar cycles of speculation,” she added. Bitcoin fans have long touted its potential to act as a “digital gold” because it is divisible, small and does not rely on a central issuer. They also once argued that bitcoin offered a hedge against stocks, but last year’s market turmoil threw cold water on that idea as the cryptocurrency’s correlation with stocks hit an all-time high. In late March, that correlation fell to its lowest since 2021, while bitcoin’s correlation with gold has climbed. After the Federal Reserve loosened monetary policy to support the economy at the start of the Covid pandemic, bitcoin outperformed gold 2.9 times over three and a half years, Bernstein noted recently. This year, fears of a US banking crisis helped push bitcoin to even greater gains. – CNBC’s Michael Bloom and Gabriel Cortes contributed reporting
